By Ananya Mariam Rajesh and Katherine Masters
(Reuters) -Nike warned on Thursday that its revenue in the first half of fiscal 2025 would shrink by a low single-digit percentage as the world's largest sportswear maker scales back on franchises to save costs.
Nike (NYSE:NKE)'s warning came after the stock market closed, and shares were down about 6% in extended trading. Executives acknowledged that Nike's direct-to-consumer strategy was not driving growth as expected and that it was losing ground in the running category.
In December, Nike outlined a $2 billion savings plan, which included reducing the supply of underperforming products and improving its supply chain.
In a post-results call on Thursday, Nike CFO Matthew Friend told investors that the company was cutting back on orders of "classic" shoes such as the Air Force 1, as well as current Pegasus Running shoes, as it shifted its focus to upcoming launches and developing new products.
"It’s not just about a product or an item here and there -- it’s about building a robust pipeline of innovation," CEO John Donahoe said on the call.
Nike beat Wall Street estimates for third-quarter revenue and profit on the back of holiday season discounts and new sneaker launches, including the Ultrafly trail running shoe, which it views as a way draw back customers amid rising competition from brands such as On and Decker's Hoka.
Donahoe promised investors that the company would be debuting additional new running sneakers this year, including shoes for "everyday runners" that incorporate the retailer's Nike Air cushioning.
The company maintained its fiscal 2024 revenue forecast of a 1% growth.
Newer brands have been taking away market share from Nike thanks to innovative performance shoes such as On Running's Cloudflow 4 and Hoka's Clifton 9 and Bondi 8, which have thick foam soles that are resonating with customers.
Nike reported a 3% jump in North America, its largest market, and a 5% rise in Greater China, as heavy promotions on its Jordan shoes attracted customers during the all-important shopping season.
The company's quarterly profit of 77 cents per share topped estimates of 74 cents on the back of job cuts and its cost savings plan.
Nike said revenue rose 0.3% to $12.43 billion, beating LSEG estimates of $12.28 billion.
"There's nothing here that shows there is anything unusual in the quarter...as far as what this means for the company's turnaround...it doesn't mean much because the company is in a restructuring situation but it's really only started," said David Swartz, analyst at Morningstar.